DEALER CUTS—FROM THE REASONABLE TO THE RIDICULOUS

February 3, 2007—Private equity fund president Stephen Girsky found a sure way to people’s attention the day before the NADA convention: He told the J.D. Power Roundtable that the Detroit Three automakers need to cut their dealer ranks by 30 to 40 percent—and by 60 to 70 percent to get the same level of sales per dealer as the best-in-class Japanese-make dealers. (Domestic dealer numbers have dropped by 4 to 5 percent annually in recent years.)

“I don’t know what Steve was drinking before he said that,” said Chrysler Group president and CEO Tom LaSorda said later. “It takes somebody that wants to sell [a dealership] and somebody that wants to buy it. We can’t mandate it.”

GM North America president Troy Clarke also spoke against GM mandating dealer cuts. “We’ve chosen not to take a heavy hand,” told reporters at the roundtable. “We’ll help facilitate [dealer consolidations]. We’re very satisfied with the progress we’ve made and hope we can continue.”
 
There’s plenty of money for dealer consolidation, said Girsky, president of Centerbridge Industrial Partners, LLC. Money is available from automakers, private equity, and public dealerships; what’s needed is better “resource management.” His firm would consider investing in dealerships “if the economics are there.”

“It’s very hard for a Detroit Three dealer to compete, with half the throughput of a Japanese[-make] dealer,” Girsky said. In some cases, retail days’ supply is nearly three times as high for a domestic make as for a Japanese.